Why unpaid assessments lead to foreclosure

September 5th, 2012 by Gary Poliakoff

A reader wrote advising that her condominium maintenance fee had increased from $98.00 a month to over $300.00. A senior citizen with a fixed income, she was no longer able to pay that amount and her association is in the process of foreclosing on her unit. She asked what she was supposed to do. My response follows:

I’m very sorry to hear your story and hope you are able to find the help you need. Many are in your position and, although I have no answer for you, I can shed some light on why your association is taking this step.

Let’s start with a couple of basic items. Although homeowner’s associations and condominiums are different beasts with slightly different rules (Florida Statute 718 governs condominiums and Florida Statute 720 governs HOAs), both statutes allow associations to foreclose on homes that do not pay their maintenance obligation.

A little history. When the condominium concept was first introduced in Florida (1963), units were sold under the banner of “maintenance free” and “care free” living. It was never explained to buyers that the monthly maintenance was not like a 30 year, fixed-rate mortgage, with payments remaining fixed for the full term of the unit ownership. In truth, those expenses inevitably increase over time.

Every buyer of a condominium, co-op or home governed by an owners’ association is a co-owner and is liable for his or her share of the common expenses regardless of how high those expenses might be. All properties require repairs and maintenance. Costs of materials go up and huge reconstruction projects, such as those required by 40-year certification in certain counties, can cost millions of dollars. Roofs must be replaced, concrete spalls and driveways need resurfacing. Ultimately, it is the owners who must bear the brunt of these costs, just as if they owned the property by themselves. The difference is, if you own a property alone, you can alone choose to allow that property to decay. In shared ownership communities, the property is managed by an elected board of directors who have a fiduciary duty to maintain the property and they must, therefore, expend funds on a regular basis.

The association has this legal duty to maintain the common elements– making all necessary repairs, paying for security, insurance, landscaping, etc. If the association fails to do so, property values drop and everyone loses their investment. So there is a fixed cost inherent in maintaining any community and when some owners do not pay their share of that maintenance responsibility, the other owners must make up the difference to cover those costs. This usually ends up resulting in higher overall assessment amounts or a special assessment to cover the bad debt. It’s not as if the community can simply cut broad swaths out of its budget – the majority of budgeted items are fixed costs like insurance, water, electricity, maintenance and the like.

Your story, like that of many other seniors, is heartbreaking, and no one likes the idea of a person being thrown out of their home under any circumstances. But what would happen in communities largely made up of people unable to pay? The entire community would collapse, and would ultimately be shut down as unsafe. Everyone would lose their homes. This is why the statutes are so strong in requiring every owner, no matter the situation, to pay their maintenance into communities with commonly owned property, and allows association to pursue those assessments all the way to foreclosure. While foreclosure is a truly terrible result for the displaced homeowner, it also ensures that a new, financially able owner will take that person’s place, ensuring the long-term health of the community.

25 comments on this post.

Jean Winters, Esq.:

September 5th, 2012 at 8:24 am

Gary, do you know of condos even in 1963 that advertised no maintenance? I haven’t seen them. I have seen voluntary homeowner associations with limited amenities or no amenities advertise no maintenance fees, with no language in the Dec requiring membership as a condition of lot ownership. That is a voluntary, not mandatory association. It is true that ads of “low maintenance fees” suck people into buying into condos who later get a rude surprise.

I disagree that all of these people must be foreclosed. Sometimes gross mismanagement, graft, embezzlement and greed are at the heart of huge increases like this. Some declarations of Condominium have limits as to how much an increase can be.

Then, finally, there are those that simply cannot afford to stay in a condo when maintenance really does cost that much. My point is only to say that this is not always the case and it may take an outside review to help discover the facts.

Jean Winters, Esq.:

September 6th, 2012 at 12:07 am

There used to be a homeowner advocacy group in Florida. Unfortunately now the talking point is advocacy for “sell paying” homeowners. I am not an apologist to what that “advocate” calls “Deadbeats”. Associations are in dire trouble because of homeowners not paying legitimate assessments. Aye, there’s the rub. Sometimes owners do not pay because the assessment were levied illegally, there is a legitimate offset, the association can’t prove that the owner didn’t pay, or the owner is not legally obligated to pay. There are defenses to assessment foreclosures. We need to remember that.

Why do we need to remember that? For starters, to borrow from criminal law, we are a country that presumes a person innocent until proven guilty. That means that a homeowner should be allowed to assert ALL his defenses not just two as was proposed last year by CCFJ. The other is that associations need to be careful when collecting assessments. Demanding amounts not legally owed as a “gamble” is unethical and unlawful. We as association attorneys need to be diligent about following the law. Associations cannot afford lawsuits that backfire, because the CAM, board or lawyer was cutting corners or sloppy, or ‘betting’ that nobody would defend.

That does not mean that associations should not be aggressive – they have to be aggressive in this economic environment. Properly levied assessments must be paid. In the process of being aggressive, however, associations need to “do it right.”

Jean Winters, Esq.:

September 6th, 2012 at 12:10 am

The talking point is “still paying” not “sell paying” – the hazards of typos.

John Doe Jr.:

September 6th, 2012 at 8:10 am

A brilliant write-up.

But anyone who reads, understands and has sworn an oath to the Constitution should feel uncomfortable. When taking private property under color of law is as casual an event as a picnic, alarm-bells should sound loud and clear in the minds of reasonable people.

The spin is that people do not pay their “fair share” for “necessary services”.

But are scams, in the form of special assessments and bloated “dues”, “fair” or “necessary services”?

All property owners should disagree and put most beneficiaries of the $41 billion scam out of work through 1) Mandatory forensic audits 2) Crash course on basic not-for-profit BUSINESS finance.

Isn’t it time that those who are forced to PRODUCE the $41 billion (and soon, $82 billion) wake up to the fact that there is ample evidence that they are at the receiving end of a business model that is failing for everyone except a few?

Ryan Poliakoff:

September 6th, 2012 at 10:32 pm

“Gary, do you know of condos even in 1963 that advertised no maintenance?”

Jean, I believe you are interpreting his use of the word “maintenance” in that sentence differently than he intended. I believe when he says “units were sold under the banner of “maintenance free”” he means free of having to work to maintain, as opposed to “assessment” free. I think it’s just another way of saying “care free”.

MikeR:

September 7th, 2012 at 8:32 am

This whole HOA sitution has spun far out of control. It is obvious to millions of Americans that they have been duped into buying into the false premise of “preserving property values” when no such thing happens in HOA land.

Instead, Homeowners find themselves subordinate to a private governance run by board members whose conduct would make any leader of any tin pot banana republic blush.

Single party political systems,no free press, incombents counting the ballots in secret, financial records locked in vaults, if kept at all, unimpartial tribunals punishing those “who deserve it”, stripping victoms of their property in payment…with the association lawyer straining at the leash to hurt anyone they are pointed at (defensless elderly seem to be favorite victoms, or at least those the media bothers to notice)…

Even the rest of the sheep who have not yet been culled out of the herd to feed the “service providers” are realizing there are always hands reaching into their equity and pockets….especially if they are in a position to continue to pay….you can’t give away an association property to millions of Americans who know the score.

The only group who are putting out a positive spin on this pathology known as HOA….are the few board members who are stealing something from the rest of us (our rights or our money…often both)….and of course the “service providers” who profit in direct proportion to how out of control these Quisling boards become.

Louis C:

September 7th, 2012 at 9:51 am

Have you tried joining the board of you HOA to try to fix it?!

John Doe Jr:

September 7th, 2012 at 8:28 pm

Louis,

Have YOU tried? Did it work?

Do you know that at some stage the legislature had to enact anti-SLAPP legislation to protect those who tried to fix it? Why was that necessary?

Louis C:

September 8th, 2012 at 8:19 am

I have joined my board in 2009 and I am still serving. I was able to turn things around with the help of a handful of other owners/directors.

This is similar to parents complaining about their children’s school, when they never get involved and never show up at the school. The difference is that they can never hope to become a major decision maker at the school!

If you join the board and work with like-minded persons, you will change things. If you hope someone else does it for you, because you don’t have the time and/or the desire to get involved, well then it’s like a blogger likes say here, “you’ll have to rely to the kindness of strangers”.

MikeR:

September 8th, 2012 at 8:52 am

The simple mindedness of the “get involved” people is a testament to the unqualified amateur volunteer nature of HOA boards.

Like your child’s school? Really? Does your child’s school have the power to levy arbitrary fines and take your property in payment?

Are the laws routinely broken with you having to “prove your innocence” at great expense ($40,000 on average)….

Are ballots counted in secret by those who have a direct interest in the outcome?

Intelligent people refuse to participate in this aberrant HOA business. That is why no one goes to kangaroo board meetings (open meeting laws…”what is that?” I’m sure you ask).

Only a minority of dolts seem to think they are smart enough to wield such unreasonable power over their neighbors property and their wallets.

I have seen so many moronic “messiah boards” come to save the day that it would be laughable if it was not so pathetic.

The predictable results involving the “service providers” mining our equity and wallets can be summed up in one word….Pathology.

John Doe Jr.:

September 8th, 2012 at 8:00 pm

If all resident owners of your association agree with your inference, congratulations! Keep up the good work. Like-minded synergy is a powerful tool. But remember, as anti-SLAPP legislation and MikeR’s comments show, it can be used for any purpose.

Louis C:

September 9th, 2012 at 7:59 am

I assume Mike R and John Doe Jr both live in a HOA or condo. What exactly do you suggest will fix your situation?! (Besides complaining about your current situation)

MikeR:

September 9th, 2012 at 7:59 am

Oh….and in Orwellian language….when normal people refuse to have anything to do with kangaroo board run meetings…it is called “homeowner apathy”

MikeR:

September 9th, 2012 at 7:37 pm

Well complaining is the thing to do!

In fact, I filed a “complaint” in Superior Court seeking a declaration that fines are unlawful and unconstitutional. My state should soon join two others that have stripped these tin pot tyrannys forever of this power.

I also am asking for damages for their unlawful conduct (repudiation of a signed contract amoung other counts)

I will punish this organization and essentially strip it of the destructive power it has.

In other words…I am slapping down this repugnant thing that is ruining my community….hard!

And I am doing it pro se…or without the help of an attorney…I think I will keep my kids college education funds intact while I protect my investment in my home.

John Doe Jr.:

September 10th, 2012 at 9:18 am

You turned things around? What makes you say that? Do all resident owners agree with you? Tell readers what was wrong. What precisely did you do to fix the ‘wrong’?

BTW: You are asking questions already answered. Try and comprehend what was said in previous posts.

Gary:

September 10th, 2012 at 9:54 am

I believe there is a fatal flaw in the concept of HOAs and condo associations.

Ask yourself one question: if you owned a corporation with a yearly budget of a half-million dollars or more per year, would you turn over total control of that corporation to a committee of people who have absolutely no business management training, education, talent or experience? Of course you wouldn’t. But that is exactly what we do in associations.

Veronica Wieland:

September 10th, 2012 at 10:35 pm

Just wondering…are there any quality, well-kept communities without a HOA in Florida where owners cut their own grass or hire a gardener and take care of their own properties? What is this obsession with HOA’s all about? I’m not a FL resident so maybe there’s something I don’t know.

September 11th, 2012 at 5:30 am

I had a very sad experience regarding this foreclosure. It leads to the selling of my house for very cheap price where I was unable to get even the construction price too.

Gary:

September 11th, 2012 at 10:20 am

Veronica,

To answer your question, there are very few, and most if not all of them were built around 30 years ago.

The people who benefit most from an HOA are:

The Builder. HOA’s allow builders to create common elements such as swimming pools, playgrounds, elaborate entrance features, landscaping features and the like. These elements made neighborhoods far more attractive to buyers. Without an HOA and the fees it collects it would be impossible to maintain these features and keep them in good repair.

The Cities. HOA’s relieve the cities of a lot of their usual responsibilities. For example, the streets in my HOA are actually private property of the HOA, and the city has no responsibility for maintenance and upkeep. HOA’s provided the cities with infrastructure for free.

The main beneficiary of an HOA is supposed to be the homeowner. Unfortunately, it often doesn’t work out that way. Those common elements and the private infrastructure are often allowed to fall into disrepair and decay due to a lack of maintenance on the part of the HOA board. The other main benefit for a homeowner is supposed to be the HOA’s requirements that all owners keep their homes in good repair, so you don’t have to worry about living next door to a trash pit. Unfortunately, that’s the other area where a great number of HOA boards fail and the end result is exactly what the HOA was designed to prevent.

I file HOA’s under the heading of “It Sounded Like A Good Idea At The Time, But Now We’ve Created A Monster.” As you can see by these posts, what we’re all wrestling with is how do we fix it.

Hope that answers your questions

MikeR:

September 11th, 2012 at 7:51 pm

Veronica,

Don’t EVER buy into an HOA. The community might look nice, and the folks might say…”oh our HOA is not that bad”….but they are all bad.

They have enormous power and can ruin you in any arbitrary maner they want.

People have lost their homes because the HOA didn’t like their shrubbery…

The attorneys that promote this housing nightmare.. they could give a crap about the law.

Their job is simple….impose the will of the board…period …(the board just cans any attorney stupid enought to oppose the board’s will with pesky concerns about what the law requires or god forbid…ethical concerns) .

The governing documents, general laws of the state, any prior approval or agreement….they all mean nothing.

You must spend tens of thousands of dollars in court to “prove your innocence” in these places.

My HOA president literally laughed in my wife and my faces when we told her the HOA was breaking the law……”Sue us, we have insurance” is what she said.

Her husband (another board member) was caught sleeping with his friends wife (another neighbor). The woman was mentally unstable, thus vulerable…thus fair game to this guy.

Miss HOA president now is long gone.

In other words…the worst scum in the community, the most ethicless people, are the ones drawn to these postitions of unchecked power over their neighbors.

Elections? What a joke, these scum count their own ballots in private and come out with a big smile….we won again!

That American citizens (60 million and counting) find themselves living this way, spits in the face of the Constitution and everyone who ever sacrificed to preserve and defend it.

HOAs are aberant. Steer yourself and your considerable investment (money and spirit) away from these places.

Veronica Wieland:

September 11th, 2012 at 9:48 pm

Gary & MikeR…Thank you so much for your replies. We live in New York State so I guess the big draw for northerners would be the FL weather. However, I never liked the idea of these condo and home associations. My feeling is instead of moving to FL, even part-time, why can’t you just take a vacation…Thank you, again.

MikeR:

September 12th, 2012 at 1:57 pm

My wife and I actually did exactly that. We bought a beautiful home in a very upscale community outside of Jax.
Knowing what we know about HOAs, we kept our heads down with the organization. Someone from the HOA came visiting and we were just sugary sweet, but basicly showed her the door.
We lived there seasonaly for years with no problem.
Then one day, after a minor dispute with a crazy (HOA) neighbor, we recieved a letter threatening fines if we didn’t fix our mailbox…which was almost perfect…but not quite.
We listed the home for sale, scored a great price just prior to the crash…and now vacation there!
So…almost no problems but….our neighbor 2 doors down ( a great guy who was an agent for the ATF) had the bad manors to also be a black man….and he was getting more and more furious about the multitude of letters he was getting threatening fines ect. about his “brown lawn”…which looked no worse than anyone elses…
Disgusting stuff happens in these places…even the “nice” ones.
And the attorneys could care less..they were getting paid for every pathetic letter.

Jean Winters, Esq.:

September 13th, 2012 at 3:14 am

Thanks for clarifying that Ryan. I did indeed misinterpret that.

Jean Winters, Esq.:

September 13th, 2012 at 3:23 am

Complaining does not help. I agree that there are problems with associations, that were created over years based on a structure that I don’t think works well for communities. The theory of urban planning, shared facilities and communities is idealistic but important. The structure as it is now is very political and is not conducive to a well functioning community. Associations are corporations- they are not communities.

Affordable housing is difficult to find, especially in urban areas without HOAs or condos. So what to do?
I see this as an issue in flux. One can no longer just write off unhappy homeowners as “disgruntled” because there are way too many and the deck is stacked against the homeowner. I like Donna Berger’s idea of making learning fun and imaginative. It’s a start. I also think that ultimately laws will have to be changed. You, as I, made a difference in our association. That is not the norm, and it takes extremely hard work and even then often is not successful. Many lack the resources or ability to do that. It is no longer ‘well you chose to live there and you knew the rules.’ It is far more complex than that.